Debt capital

2017 in review

During the year under review, we focused on continued long-term optimisation of Vesteda’s debt portfolio in line with the main targets of our debt funding strategy:

Further reduction of interest costs

Maintaining long-term leverage of approx. 30% of total assets

Maintaining diversification, with at least three different funding sources

Extension and diversification of maturity profile, while maintaining a well distributed repayment pattern

Maintaining sufficient liquidity headroom to allow for acquisitions and the refinancing of short-term debt maturities

Further reduction of asset encumbrance for secured debt

At year-end 2017, Vesteda’s drawn debt capital amounted to €1,177 million which is below the debt capital drawn of €1,237 million at year-end of 2016, mainly as a result of our use of the new equity investment in May 2017 for a temporary reduction in drawn debt.

As a result of the lower amount of drawn debt in combination with the continued positive revaluation of Vesteda’s assets, total leverage during 2017 declined to a leverage ratio of 23% at year-end 2017 from 28% at year-end 2016.

On the back of improved credit metrics, in May 2017 Standard & Poor’s reconfirmed Vesteda’s credit rating of BBB+ with stable outlook.

In 2017, we continued to focus on a balance between a sustainable reduction of interest expenses while increasing our debt capital’s weighted average maturity. The following transactions contributed to achieving our long-term debt funding targets:

In August 2017, Vesteda prepaid all remaining outstanding mortgage loans with FGH Bank. As a result, Vesteda has no refinancing obligations until July 2019.

In December 2017, Vesteda issued a new €35-million 10-year private placement and a €65-million 15-year private placement transaction under the Vesteda Finance EMTN-programme, which contributed to the lengthening of the weighted average maturity of Vesteda’s debt portfolio. The proceeds were used to reduce the drawn amounts under our revolving credit facility.

In December 2017, the remaining interest rate swap with a notional of €215 million and a term until 2020 was unwound for a total consideration of €12 million, which lowered total hedged and fixed interest exposure to 76.5% at year-end 2017 and will reduce interest expenses in the future.

Through these transactions, Vesteda increased its average weighted maturity profile to 4.6 years, above its long-term minimum target of four years. The prepayment of the FGH Bank mortgage debt ended asset encumbrance compared with 4% encumbered assets at year-end 2016. As at year-end 2017, Vesteda retained €323 million of headroom under its revolving credit facility, providing flexibility and liquidity headroom to cover potential acquisitions and refinancing obligations. The average total debt interest rate at year-end 2017 was 2.2%.

Vesteda's main financial covenants, as part of its financing agreement, are a maximum loan-to-value ratio of 50% and a minimum interest cover ratio of 2.0. Throughout 2017, we comfortably met all the financial covenants of our financing arrangements.